UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended November 30, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ____________________
Commission file number 1-4351
SOUTHEASTERN PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 13-5534018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(407) 653-4000
(Registrant's telephone number, including area code)
777 South Flagler Drive, Suite 1000E, West Palm Beach, FL 33401
(Address of principal executive offices) (zip code)
6917 Collins Avenue, Miami Beach, Florida 33141
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
There were 11,655,067 shares of the registrant's Class A Common Stock ($1.00
par value) outstanding as of January 1, 1994.
Page 1 of 27PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
February 28,November 30,
1993 1993
(A) (Unaudited)
ASSETS
Current assets:
Cash $ 107 $ 35,524
Restricted cash and equivalents 5,264 5,264
Non-trade receivables 687 1,240
Notes receivable from Triarc Companies, Inc. less
unamortized deferred discount of $39 25,047 --
Deferred income tax benefit -- 2,724
Other current assets 1,178 --
Net current assets of discontinued operations 1,374 --
-------- --------
Total current assets 33,657 44,752
Notes receivable from Triarc Companies, Inc. 26,538 26,538
Investments in affiliates 65,327 68,033
Deferred income tax benefit 1,282 1,600
Other assets 1,201 1,381
Net non-current assets of discontinued operations 64,015 24,233
-------- --------
$192,020 $166,537
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,000 $ 9,015
Notes payable to affiliate 14,043 --
Accounts receivable financing 9,536 --
Accrued expenses 2,214 3,253
Net current liabilities of discontinued operations -- 8,242
-------- --------
Total current liabilities 34,793 20,510
Long-term debt less unamortized discount
of $5,280 and $4,312 48,718 49,715
Other liabilities 279 403
Commitments and contingencies
Stockholders' equity:
Preferred stock 24 24
Common stock 11,896 11,896
Additional paid-in capital 90,539 90,539
Retained earnings (accumulated deficit) 6,637 (5,684)
Treasury stock (866) (866)
-------- --------
Total stockholders' equity 108,230 95,909
-------- --------
$192,020 $166,537
======== ========
(A) Derived from the audited consolidated financial statements of the
Company as of February 28, 1993.
See accompanying notes to condensed consolidated financial statements.
Page 2 of 27
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Three months ended Nine months ended
November 30, November 30,
1992 1993 1992 1993
Revenues: (Unaudited)
Equity in earnings of affiliates
before cumulative effect of
changes in accounting principles $ 4,060 $ 141 $ 9,647 $ 4,310
Interest income from Triarc
Companies, Inc. 1,853 860 5,507 3,141
Other 4 160 119 230
------- ------- ------- --------
5,917 1,161 15,273 7,681
------- ------- ------- --------
Expenses:
Interest expense (3,230) (2,290) (9,732) (7,436)
Write-off of investment in Chesapeake
Insurance Company Limited -- (1,500) -- (1,500)
Other (expense) reversal (13) 1,900 (36) 75
------- ------- ------- --------
(3,243) (1,890) (9,768) (8,861)
------- ------- ------- --------
Income (loss) from continuing
operations before income taxes
and cumulative effect of changes
in accounting principles 2,674 (729) 5,505 (1,180)
Benefit from income taxes 196 -- 727 1,791
------- ------- ------- --------
Income (loss) from continuing
operations before cumulative
effect of changes in accounting
principles 2,870 (729) 6,232 611
Income (loss) from discontinued
operations 731 (11,001) 2,072 (20,446)
------- ------- ------- --------
Income (loss) before cumulative
effect of changes in accounting
principles 3,601 (11,730) 8,304 (19,835)
Cumulative effect of changes in
accounting principles:
The Company -- -- -- 7,617
Equity in affiliates -- -- (5,954) (102)
------- -------- ------- --------
Net income (loss) $ 3,601 $ (11,730) $ 2,350 $ (12,320)
======= ======== ======= ========
Income (loss) per share:
Continuing operations $ .25 $ (.07) $ .53 $ .05
Discontinued operations .06 (.94) .18 (1.76)
Cumulative effect of changes in
accounting principles -- -- (.51) .65
------- -------- ------- -------
$ .31 $ (1.01) $ .20 $(1.06)
======= ======== ======= =======
See accompanying notes to condensed consolidated financial statements.
Page 3 of 27 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
November 30,
1992 1993
(In thousands)
Cash flows from operating activities:
Net income (loss) $ 2,350 $(12,320)
Adjustments to reconcile net income (loss) to net
cash and equivalents provided by (used in)
operating activities:
Amortization of deferred financing costs
and debt discount 1,038 968
Amortization of deferred discount on notes
receivable from Triarc Companies, Inc. ("Triarc") (72) (39)
Write-off of investment in
Chesapeake Insurance Company Limited -- 1,500
Benefit from deferred income taxes (727) (1,791)
Equity in earnings of affiliates before
cumulative effect of changes in accounting
principles (9,647) (4,310)
Dividend from unconsolidated affiliate 3,004 --
Net decrease in notes receivable from Triarc 5,873 --
Loss (income) from discontinued operations (2,072) 20,446
Cumulative effect of changes in accounting
principles 5,954 (7,515)
Other, net 571 (5)
Decrease (increase) in non-trade receivables 701 (553)
Decrease (increase) in other current assets (1,557) 1,178
Increase (decrease) in accrued expenses 1,991 (891)
-------- --------
Net cash provided by (used in) operating activities 7,407 (3,332)
-------- --------
Cash flows from investing activities:
Proceeds from sales of subsidiaries -- 43,002
Capital expenditures (21) (5)
-------- --------
Net cash provided by (used in) investing activities (21) 42,997
-------- --------
Cash flows from financing activities:
Debt repayments (998) (23,579)
Collection of notes receivable from Triarc -- 25,379
-------- --------
Net cash provided by (used in) financing activities (998) 1,800
-------- --------
Net cash provided by continuing operations 6,388 41,465
Net cash used in discontinued operations (4,228) (6,048)
-------- --------
Net increase in cash 2,160 35,417
Cash at beginning of period 282 107
-------- --------
Cash at end of period $ 2,442 $ 35,524
======== ========
See accompanying notes to condensed consolidated financial statements.
Page 4 of 27 PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
November 30, 1993
(Unaudited)
1. Basis of Presentation
Southeastern Public Service Company and subsidiaries ("SEPSCO") is a 71.1%
owned subsidiary of Triarc Companies, Inc. ("Triarc", formerly DWG
Corporation).
The accompanying unaudited condensed consolidated financial statements of
SEPSCO have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and, therefore, do
not include all information and footnotes necessary for a fair presentation
of financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. In the opinion of SEPSCO,
however, the accompanying condensed consolidated financial statements
contain all adjustments, consisting of normal recurring adjustments and
certain significant charges as discussed in Note 2, necessary to present
fairly SEPSCO's financial position as of February 28, 1993 and November 30,
1993, its results of operations for the three-month and nine-month periods
ended November 30, 1992 and 1993 and its cash flows for the nine-month
periods ended November 30, 1992 and 1993. This information should be read
in conjunction with the consolidated financial statements and notes thereto
included in SEPSCO'S annual report on Form 10-K for the year ended February
28, 1993.
On October 27, 1993 SEPSCO's Board of Directors approved a change in the
fiscal year of SEPSCO ending February 28 to a calendar year ending December
31, effective for the ten month period ending December 31, 1993.
Graniteville Company ("Graniteville"), a 49% owned investment, also changed
its fiscal year to a calendar year ending December 31. SEPSCO plans to
issue a transition report on Form 10-K for the ten-month period ended
December 31, 1993. As used herein, "Fiscal 1993" refers to the year ended
February 28, 1993 and "Transition 1993" refers to the eight months ended
December 31, 1993.
2. Significant Charges in the First Six Months of Transition 1993
The accompanying condensed consolidated statements of operations include
the following significant charges recorded in the first six months of
Transition 1993 (in thousands):
Estimated cost allocated to SEPSCO by Triarc
to terminate the lease on Triarc's
existing corporate facilities $ 2,840
Costs allocated to SEPSCO by Triarc related
to a five-year consulting agreement
extending through April 1998 between Triarc
and the former Vice Chairman of Triarc 1,374
Estimated cost to relocate SEPSCO's
corporate office 500
Total estimated facilities relocation and -------
corporate restructuring charges (a) 4,714 (1)
Page 5 of 27PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Estimated cost allocated to SEPSCO by
Triarc for compensation paid to the Special
Committee of the Board of Directors of Triarc (b) 625 (1)
Write-down of certain unprofitable properties (c) 8,000 (1)
Income tax benefit relating to the above charges (4,523) (1)
Provision for income tax contingencies and other
income tax matters 600 (1)
Equity in significant charges of affiliates,
net of taxes (d) 2,260
Cumulative effect of changes in accounting
principles (Note 7) (7,515)
--------
$ 4,161
========
(1) Included in "Income (loss) from discontinued operations, net of
income taxes"
(a) In the first quarter of Transition 1993, net of adjustments
recorded during the second quarter of Transition 1993, results of
operations were significantly impacted by facilities relocation and
corporate restructuring charges aggregating $4,714,000 consisting
of $4,214,000 of charges allocated to SEPSCO by Triarc: (i)
estimated allocated cost of $2,840,000 to terminate the lease on
its existing corporate facilities; (ii) total allocated costs of
$1,374,000 relating to a five-year consulting agreement (the
"Consulting Agreement") extending through April 1998 between Triarc
and Steven Posner, the former Vice Chairman of Triarc and (iii)
$500,000 of estimated costs to be incurred by SEPSCO to relocate
SEPSCO's corporate office. All of such charges are related to the
Change in Control described in Note 5. In connection with the
Change in Control, Victor Posner and Steven Posner resigned as
officers and directors of Triarc. In order to induce Steven Posner
to resign, Triarc entered into the Consulting Agreement with him.
The allocated cost related to the Consulting Agreement was recorded
as a charge in the first quarter of Transition 1993 because the
Consulting Agreement does not require any substantial services and
SEPSCO and Triarc do not expect to receive any services that will
have substantial value to them. As a part the Change in Control,
the Triarc Board of Directors was reconstituted. The first meeting
of the reconstituted Triarc Board of Directors was held on April
24, 1993. At that meeting, based on a report and recommendations
from a management consulting firm that had conducted an extensive
review of Triarc and its subsidiaries operations and management
structure, the Triarc Board of Directors approved a plan of
decentralization and restructuring which entailed, among other
things, the following features: (i) the strategic decision to
manage Triarc in the future on a decentralized rather than on a
centralized basis; (ii) the hiring of new executive officers for
Triarc; (iii) the termination of a significant number of employees
as a result of both the new management philosophy and the hiring of
an almost entirely new management team and (iv) the relocation of
Triarc and certain subsidiaries, including SEPSCO's corporate
headquarters. SEPSCO's allocated cost to terminate the lease on
Triarc's existing corporate facilities ($2,840,000) and the cost to
Page 6 of 27
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
relocate SEPSCO's headquarters all stemmed from the
decentralization and restructuring plan formally adopted at the
April 24, 1993 meeting of the reconstituted Triarc Board of
Directors and accordingly, were recorded in the first quarter of
Transition 1993.
(b) In accordance with certain court proceedings and related
settlements, five directors, including three court-appointed
directors, were appointed in 1991 to serve on a special committee
(the "Special Committee") of Triarc's Board of Directors. Such
committee was empowered to review and pass on transactions between
Triarc and Victor Posner, the then largest shareholder of Triarc,
and his affiliates. SEPSCO has been charged $625,000 as an
allocation of the cash portion of a success fee payable to the
Special Committee attributable to the closing of the Triarc
reorganization and the resulting Change in Control.
(c) Represents write-downs in the carrying value of certain
unprofitable properties reflecting their estimated impairment as a
result of management's re-evaluation of such assets.
(d) SEPSCO's equity in significant charges recorded in the first
quarter of Transition 1993, net of adjustments recorded during the
second quarter of Transition 1993, which were allocated by Triarc
to Graniteville and CFC Holdings Corp. ("CFC Holdings"), a 5.4%
owned investment and a subsidiary of Triarc, is summarized as
follows (in thousands):
CFC
Graniteville Holdings Total
------------ -------- ----
Estimated cost allocated to the
affiliates by Triarc to
terminate the lease on
Triarc's existing
corporate headquarters (a) $ 790 $ 382 $ 1,172
Total cost allocated to the
affiliates related to the
Consulting Agreement (a) 112 79 191
Estimated cost allocated to the
affiliates for compensation
paid to the Special
Committee (b) 813 97 910
Affiliate's facilities relocation
and corporate restructuring -- 544 544
Other -- 419 419
Less income tax benefit on the
above items (577) (399) (976)
--------- --------- ---------
$ 1,138 $ 1,122 $ 2,260
========= ========= =========
Page 7 of 27
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
3. Discontinued Operations
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of all of its operating businesses, consisting of its
utility and municipal services, refrigeration, liquefied petroleum gas
and natural gas and oil businesses. Accordingly, SEPSCO has presented
the accompanying condensed consolidated financial statements for each
of the periods shown to reflect all of such businesses as discontinued
operations through July 22, 1993. The operating results of the
discontinued operations subsequent to July 22, 1993 have been deferred
and are included in "Net current liabilities of discontinued
operations". SEPSCO intends to transfer the liquefied petroleum gas
business to a subsidiary of Triarc. On December 9, 1993 SEPSCO's Board
of Directors decided that rather than selling the natural gas and oil
business to an independent third party, SEPSCO would transfer such
business to Triarc following the SEPSCO Merger (see Note 9) and the
resulting elimination of the minority interest in SEPSCO.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance
services operations previously included in its utility and municipal
services business segment for $69,600,000 in cash plus the assumption by
the purchaser of $5,000,000 in current liabilities resulting in a loss
of $4,771,000. On October 7, 1993 SEPSCO sold the stock of its two
construction related operations previously included in its utility and
municipal services business segment for a nominal amount subject to
adjustments described below. As the related assets are sold or
liquidated the purchasers have agreed to pay, as deferred purchase
price, 75% of the net proceeds received therefrom (cash of $1,515,000
has been received as of November 30, 1993) plus, in the case of the
larger of the two entities, an amount equal to 1.25 times the adjusted
book value of such entity as of October 5, 1995 (the "Book Value
Adjustment"). As of October 7, 1993, the adjusted book value of the
assets of that entity aggregated approximately $1,600,000. In addition,
SEPSCO paid $2,000,000 in October and November 1993 to cover the buyer's
short-term operating losses and working capital requirements for the
construction related operations. As of November 30, 1993 SEPSCO
estimated the sales of the construction related operations would result
in a gain of $2,030,000 excluding any consideration of the potential
Book Value Adjustment. In January 1994, however, SEPSCO learned that
the buyer of such businesses had successfully negotiated extensions of
certain major contracts with respect to the larger of such businesses
and as a result no longer intends to immediately dispose of the major
portion of the assets. Should the buyer hold such assets through
October 5, 1995, the purchase price would effectively be realized
through the Book Value Adjustment. Based on such revised estimates of
asset sales, SEPSCO would approximately breakeven excluding any
consideration of the potential Book Value Adjustment. The charge to
discontinued operations during the third quarter of Transition 1993 (see
second following paragraph) reflects such estimated breakeven on the
disposal of the construction related operations.
On November 12, 1993 SEPSCO signed a letter of intent to sell
substantially all of the operating assets of the ice operations of its
refrigeration business segment for $5,000,000 in cash, a $4,000,000 note
(discounted value $3,101,000) and the assumption by the buyer of certain
Page 8 of 27 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
current liabilities of up to $1,000,000. The note, which bears no
interest during the first year and 5% thereafter, would be payable in
installments of $120,000 at the end of each of the four years following
the closing date with the balance of $3,520,000 due at the end of the
fifth year following the closing date. The precise timetable for the
sale and liquidation of the remaining discontinued operation, the cold
storage operations of SEPSCO's refrigeration business segment, will
depend upon SEPSCO's ability to identify appropriate potential
purchasers and to negotiate acceptable terms for the sale of such
operation. SEPSCO currently anticipates completion of such sales by
July 31, 1994.
In connection with the consummation of the sales of the tree maintenance
services operations and the construction related activities and the
signing of the letter of intent to sell the ice operations discussed
above, SEPSCO reevaluated the estimated gain or loss from the sale of
its discontinued operations and provided $11,001,000 for the revised
estimated loss on the sale of the discontinued operations from an
estimated break-even position as of August 31, 1993. The revised
estimate principally reflects (i) $4,700,000 of losses from the sales of
the operations comprising the utility and municipal services business
segment previously estimated to be approximately break-even and (ii)
$6,600,000 of losses from the sale of operations comprising SEPSCO's
refrigeration business segment previously estimated to be a gain of
$1,600,000 less previously estimated losses of $1,500,000 from the sale
of SEPSCO's natural gas and oil business segment which now will be
transferred to Triarc at net book value. The net loss from the sale of
the utility and municipal services business segment reflects a reduction
of $2,030,000 due to a decrease in asset sales of the construction
related activities by July 31, 1994, a reduction of $1,800,000 in the
estimated sales price for the construction related operations from
previous estimates and other adjustments in finalizing the loss on the
sale of the tree maintenance services operations. The $8,200,000 change
relating to the sales of the refrigeration business segment principally
results from (i) a $4,000,000 reduction in the sales price for the ice
operations based on the letter of intent and (ii) a $4,000,000 reduction
in the estimated sales price of the cold storage operations based on
preliminary sales discussions and experience with respect to negotiating
the sale of the other operations.
Based on the analysis performed to date, after taking into account (i)
a $4,900,000 pre-tax write-down in the fourth quarter of Fiscal 1993
relating to accruals for environmental remediation and losses on certain
contracts in progress, (ii) an $8,000,000 pre-tax provision for
impairment of certain unprofitable properties in the first quarter of
Transition 1993 reflected in operating profit (loss) of discontinued
operations summarized below and (iii) the charge to discontinued
operations of $11,001,000 taken in the three months ended November 30,
1993 SEPSCO expects that all remaining dispositions, including the
results of their operations through the actual or anticipated disposal
dates, will not in the aggregate result in any additional material loss
to SEPSCO.
Page 9 of 27
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
The income (loss) from discontinued operations consisted of the
following (in thousands):
Three months ended Nine months ended
November 30, November 30,
1992 1993 1992 1993
Income (loss) from operations of
discontinued operations net of
income taxes (benefit) of $390,
$-, $1,017 and $(3,830) $ 731 $ -- $ 2,072 $ (9,445)
Loss on disposal of
discontinued operations
without income tax benefit -- (11,001) -- (11,001)
-------- -------- ------- --------
$ 731 $(11,001) $ 2,072 $(20,446)
======== ======== ======= ========
Page 10 of 27PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
The income (loss) from discontinued operations up to the July 22, 1993
measurement date and the loss from operations during the period of July
23, 1993 to November 30, 1993, which has been deferred, consisted of the
following:
Three Nine
months months March 1, July 23,
ended ended 1993 to 1993 to
November November July November
30, 1992 30, 1992 22, 1993 30, 1993
(In thousands)
Operating Revenues:
Net sales $ 10,686 $ 31,752 $ 17,975 $ 10,614
Service revenues 50,839 145,696 76,630 45,250
-------- ------- ------- -------
61,525 177,448 94,605 55,864
-------- ------- ------- -------
Operating costs and expenses:
Cost of sales 9,130 26,424 14,721 8,796
Cost of services 46,106 132,192 71,874 42,948
Selling, general and administrative
expenses 4,148 11,476 7,077 6,470
Write-down of certain unprofitable
properties (Note 2) -- -- 8,000 --
Facilities relocation and corporate
restructuring (Note 2) -- -- 4,714 --
-------- ------- ------- -------
59,384 170,092 106,386 58,214
-------- ------- ------- -------
Operating profit (loss) 2,141 7,356 (11,781) (2,350)
-------- ------- ------- -------
Other income (expense):
Interest expense (965) (2,868) (1,341) (651)
Other, net (55) (1,399) (153) 131
-------- ------- ------ -------
(1,020) (4,267) (1,494) (520)
-------- ------- ------ -------
Income (loss) before
income taxes 1,121 3,089 (13,275) (2,870)
Benefit from (provision for)
income taxes (390) (1,017) 3,830 --
-------- ------- -------- -------
Net income (loss) $ 731 $ 2,072 $ (9,445) $ (2,870)
======== ======= ======== =======
Page 11 of 27PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Net current assets (liabilities) and non-current assets of discontinued
operations consist of the following:
February 28, November 30,
1993 1993
(In thousands)
Cash $ 132 $ 512
Receivables 29,961 4,482
Inventories 3,787 1,724
Deferred income tax benefit -- 405
Other current assets 2,189 1,144
Current portion of long-term debt (395) (44)
Current portion of capitalized
leases due to leasing affiliate (10,536) (1,108)
Accounts payable (11,229) (6,299)
Due to Triarc -- (4,845)
Accrued salaries and wages (3,469) (555)
Accrued expenses (9,066) (3,658)
-------- --------
Net current assets (liabilities) of
discontinued operations $ 1,374 $ (8,242)
======== ========
Properties, net $ 99,679 $ 32,565
Other assets 1,688 1,511
Long-term debt (677) (526)
Capitalized leases due to leasing affiliate (17,258) (537)
Deferred income taxes (14,977) (4,729)(a)
Other liabilities (4,440) (4,051)
-------- --------
Net non-current assets of discontinued
operations $ 64,015 $ 24,233
======== ========
(a) Includes a reduction of $6,366,000 due to change in accounting for
income taxes (Note 7)
4. Write-off of Investment
SEPSCO had a $1,500,000 investment in the preferred stock of Chesapeake
Insurance Company Limited ("Chesapeake Insurance"), a subsidiary of CFC
Holdings, and Graniteville had a $2,500,000 investment in such preferred
stock. During its quarter ended September 30, 1993 Chesapeake Insurance
increased its reserve for insurance and reinsurance losses by $10,000,000
and as result reduced the stockholders' equity of Chesapeake Insurance to
$308,000. In December 1993 Triarc decided to cease writing insurance and
reinsurance of any kind through Chesapeake Insurance. As a result
Chesapeake Insurance will not have any future operating cash flows and
its remaining liabilities, including payment of claims on insurance
previously written, will be liquidated with assets on hand. Accordingly,
the preferred stock investment is not recoverable and SEPSCO and
Graniteville wrote off their investment in such stock since the decline
in value was deemed to be other than temporary.
Page 12 of 27PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
5. Change in Control
As previously reported, a change in control of SEPSCO's parent, Triarc,
occurred on April 23, 1993, which as a result of Triarc's ownership of
SEPSCO's voting securities constituted a change in control of SEPSCO (the
"Change in Control"). In connection with the Change in Control, the
Board of Directors of SEPSCO was reconstituted and new senior executive
officers were elected.
In connection therewith, SEPSCO received from Triarc $27,115,000 in cash
and $3,535,000 in the form of an offset of amounts due to Triarc as of
April 23, 1993 in connection with the providing by Triarc of certain
management services to SEPSCO. The aggregate $30,650,000 of payments by
Triarc included full payment of $6,806,000 (including $306,000 of accrued
interest) on an unsecured promissory note issued to SEPSCO by Triarc in
connection with the 1988 sale of an investment and partial payment of
$23,844,000 (including $1,430,000 of accrued interest) on a $48,952,000
promissory note (the "Note") due to SEPSCO. The remaining $26,538,000
principal balance of the Note is due on August 1, 1998. The Note
resulted from the 1986 sale of approximately 51% of the outstanding
common shares of Graniteville to Triarc and is secured by such shares.
The Note is subordinated to senior indebtedness of Triarc to the extent,
if any, that the payment of principal and interest thereon is not
satisfied out of proceeds of the pledged Graniteville shares. SEPSCO
used the $27,115,000 of cash proceeds to pay $12,689,000 due under its
accounts receivable financing arrangement which was then terminated and
to pay $14,426,000 (including $383,000 of accrued interest) owed to
Chesapeake Insurance.
6. Investment in Affiliates
Investment in affiliates consisted of the following:
February 28, November 30,
1993 1993
(In thousands)
Graniteville $ 62,530 $ 67,490
CFC Holdings 1,297 543
Chesapeake Insurance (Note 4) 1,500 --
---------- ---------
$ 65,327 $ 68,033
=========== =========
Page 13 of 27PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Equity in earnings of affiliates before and cumulative effect of changes
in accounting principles consisted of the following:
Three months ended Nine months ended
November 30, November 30,
1992 1993 1992 1993
(In thousands)
Graniteville $ 3,958 $ 673 $ 9,371 $ 4,960 (a)
CFC Holdings 102 (532) 276 (650)(a)
------- ------- ------- -------
$ 4,060 $ 141 $ 9,647 $ 4,310
======= ======= ======= =======
(a) Affected by certain significant charges as set forth in Note 2.
Graniteville
Effective March 1, 1992 Graniteville adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes" ("SFAS 109") (see Note 7 for further discussion of SFAS
109) and SFAS No. 106 "Employers' Accounting for Postretirement Benefits
Other than Pensions" ("SFAS 106"). The cumulative effect of the changes
in accounting principles resulted in charges to Graniteville's
consolidated statement of earnings amounting to $12,314,000 for SFAS 109
and $722,000, net of Graniteville's income taxes of $429,000, for SFAS
106. SEPSCO's equity in such cumulative effect, net of SEPSCO income
taxes of $434,000 on the ultimate distribution of such earnings to
SEPSCO, amounted to a charge of $5,954,000, or $.51 per share and is
reported separately in the condensed consolidated statement of
operations for the nine months ended November 30, 1992.
Under its present credit facility, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including
SEPSCO, in an amount equal to 50% of the net income of Graniteville
accumulated from the beginning of the first fiscal year commencing on or
after December 20, 1994, provided that the outstanding principal balance
of Graniteville's term loan is less than $50,000,000 at the time of the
payment (the outstanding principal balance was $75,000,000 as of
November 30, 1993) and certain other conditions are met. Accordingly,
Graniteville is unable to pay any dividends or make any loans or
advances to SEPSCO prior to December 31, 1995.
Summary consolidated results of operations of Graniteville for the nine
months ended November 30, 1992 and 1993 are as follows:
Nine months ended
November 30,
1992 1993
(In thousands)
Operating revenues $ 378,039 $ 399,870
Operating profit (Note 2) 36,028 27,853
Earnings before cumulative effect of
changes in accounting principles (Note 2) 19,125 10,127
Net earnings (Note 2) 6,089 10,127
Page 14 of 27 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
CFC Holdings
Effective January 1, 1993, CFC Holdings adopted SFAS 109 and SFAS 106
with the cumulative effect of changes in accounting principles resulting
in charges to the CFC Holdings consolidated statement of operations
amounting to $1,738,000 and $153,000, respectively. SEPSCO's equity in
such cumulative effect amounted to a charge of $102,000 or $.01 per
share and is reported separately in the condensed consolidated statement
of operations for the nine months ended November 30, 1993.
7. Income Taxes
SEPSCO recorded no benefit from income taxes during the three-month
period ended November 30, 1993 despite a pretax loss of $729,000 since
it is in a net operating loss position and no benefit can be realized.
SEPSCO recorded a benefit from income taxes of $1,791,000 during the
nine-month period ended November 30, 1993 despite a pretax loss of
$1,180,000, representing an effective rate substantially in excess of
the 35% Federal statutory rate, principally due to the equity in
earnings of affiliates of $4,310,000 on which no income taxes were
provided.
Effective March 1, 1993 SEPSCO adopted the provisions of SFAS 109 which
requires a change from the deferred method to the asset and liability
method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax consequences of
the temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities. The deferred
income tax provision or benefit for each year represents the decrease or
increase, respectively, in the deferred income tax benefit during such
year. The cumulative effect on prior years of this change in accounting
principles was a credit of $7,617,000 or $.65 per share, and is reported
separately in the condensed consolidated statement of operations for the
nine months ended November 30, 1993. Prior years' financial statements
have not been restated.
Page 15 of 27 PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
The current and non-current deferred tax assets from continuing
operations and current deferred tax asset and non-current deferred tax
(liability) from discontinued operations consisted of the following
components as of March 1, 1993:
Current
-------
Continuing Discontinued
Operations Operations
(In thousands)
Net operating loss, alternative minimum
tax and depletion carryforwards $ 321 $ 7,307
Allowance for doubtful accounts -- 455
Reserve for losses on construction
contracts 608
Ehrman Litigation settlement reserve
(See Note 9) 495 --
Reserve for employee benefit costs 145 379
Other -- 146
--------- ---------
$ 961 $ 8,895
========= =========
Non-Current
------------
Continuing Discontinued
Operations Operations
(In thousands)
Accelerated depreciation $ -- $ (18,638)
Amortization of original issue discount 1,561 --
Insurance premiums not yet paid to a
third party -- 1,437
Reserves for environmental costs -- 1,115
Reserve for income tax contingencies -- (951)
Other -- 313
--------- ---------
$ 1,561 $ (16,724)
========= =========
Federal income tax returns of SEPSCO have been examined by the Internal
Revenue Service ("IRS") for the tax years 1985 through 1988. Such audit
has been substantially resolved at no material cost to SEPSCO. The IRS
has recently commenced the examination of SEPSCO's Federal income tax
returns for the tax years from 1989 through 1992. The amount and timing
of any payments required as a result of the 1989 through 1992 audit
cannot presently be determined. However, SEPSCO believes that it has
adequate aggregate reserves for any tax liabilities, including interest,
that may result from all such examinations.
8. Income (Loss) Per Share
The income (loss) per share has been computed by dividing net income
(loss), after the reduction for an insignificant amount of preferred
stock dividends, by the 11,655,067 weighted average common shares
outstanding during the three-month and nine-month periods ended November
30, 1992 and 1993.
Page 16 of 27 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
9. Legal Matters
In December 1990, a purported shareholder derivative suit (the "Ehrman
Litigation") was brought against SEPSCO's directors at that time and
certain corporations, including Triarc, in the United States District
Court (the "District Court"). On October 18, 1993, Triarc entered into
a settlement agreement (the "Settlement Agreement") with the plaintiff
(the "Plaintiff") in the Ehrman Litigation. The Settlement Agreement
provides, among other things, that SEPSCO would be merged into, or
otherwise acquired by, Triarc or an affiliate thereof, in a transaction
in which each holder of SEPSCO's common stock other than Triarc will
receive in exchange for each share of SEPSCO's common stock, 0.8 shares
of Triarc's common stock. On November 22, 1993 Triarc and SEPSCO
entered into an agreement and plan of merger which provides for the
merger (the "Merger") of a subsidiary of Triarc into SEPSCO in the
manner described in the Settlement Agreement. Following the Merger,
Triarc would own 100% of SEPSCO's common stock. Consummation of the
Settlement Agreement and the Merger are conditioned on, among other
things, approval by SEPSCO's stockholders other than Triarc. On January
11, 1994 the District Court approved the Settlement Agreement.
The Settlement Agreement also provides that Plaintiff's counsel and
financial advisor will be paid by Triarc, subject to court approval,
cash not to exceed $1,250,000 and $50,000, respectively and that Triarc
would be responsible for other expenses relating to the issuance of
Triarc common shares pursuant to the Merger. SEPSCO had previously
accrued such $1,300,000 in the fourth quarter of Fiscal 1993 and accrued
additional expenses related to the settlement of the Ehrman Litigation
of $400,000 and $1,200,000 in the first and second quarters of
Transition 1993, respectively, since SEPSCO originally anticipated it
would be responsible for such fees and expenses. However, as previously
indicated, the Settlement Agreement established that Triarc and not
SEPSCO was responsible for certain of these expenditures and,
accordingly, SEPSCO reversed $1,900,000 of previously accrued expenses
in the third quarter of Transition 1993.
As a result of certain environmental audits in 1991, SEPSCO became aware
of possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's refrigeration operations and has filed appropriate
notifications with state environmental authorities and has begun a study
of remediation at such sites. SEPSCO has removed certain underground
storage and other tanks at certain facilities of its refrigeration
operations and has engaged in certain remediation in connection
therewith. Such removal and environmental remediation involved a
variety of remediation actions at various facilities of SEPSCO located
in a number of jurisdictions. Such remediation varied from site to
site, ranging from testing of soil and groundwater for contamination,
development of remediation plans and removal in certain instances of
certain contaminated soils. Based on preliminary information and
consultations with, and certain reports of, environmental consultants
and others, SEPSCO presently estimates the cost of such remediation
and/or removal will approximate $3,700,000, all of which was provided in
prior years. In connection therewith, SEPSCO has incurred actual costs
through November 30, 1993 of $1,143,000 and has a remaining accrual of
Page 17 of 27
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
$2,557,000. SEPSCO believes that after such accrual the ultimate
outcome of this matter will not have a material adverse effect on
SEPSCO's consolidated results of operations or financial position.
Page 18 of 27PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
NINE MONTHS ENDED NOVEMBER 30, 1993 COMPARED WITH NINE MONTHS ENDED NOVEMBER
30, 1992
Revenues decreased to $7.7 million in 1993 from $15.3 million in 1992
due to a decrease of $5.3 million in equity in earnings of affiliates before
cumulative effect of changes in accounting principles and a $2.4 million
decrease in interest income from Triarc. The decrease in equity in earnings
of affiliates before cumulative effect of changes in accounting principles
resulted from decreased earnings of Graniteville and, to a lesser extent,
CFC Holdings. Such lower earnings are principally attributable to (i) higher
corporate charges from Triarc to Graniteville during Transition 1993, (ii)
provisions for insurance losses by CFC Holdings' subsidiary Chesapeake
Insurance (see below), (iii) certain significant charges recorded in the
first quarter of Transition 1993 relating to costs allocated from Triarc to
such affiliates primarily for facilities relocation and corporate
restructuring and to compensation paid to a special committee of Triarc's
Board of Directors and (iv) the write-off of Graniteville's $2.5 million
investment in Chesapeake Insurance (see below). The decrease in interest
income from Triarc resulted from the lower outstanding balance of the Triarc
note receivable as a result of the April 1993 repayment of $28.9 million in
connection with the change in control of Triarc which occurred on April 23,
1993, which as a result of Triarc's ownership of SEPSCO's voting securities
constituted a change in control of SEPSCO (the "Change in Control").
Interest expense decreased to $7.4 million in 1993 from $9.7 million in
1992 due primarily to the lower debt outstanding and, to a much lesser
extent, lower interest rates during 1993.
SEPSCO also wrote off its $1.5 million investment in Chesapeake
Insurance since such investment is no longer deemed recoverable as a result
of Chesapeake Insurance reducing its stockholders' equity to $0.3 million
following additional provisions for insurance losses of $10.0 million during
its quarter ended September 30, 1993 and the decision by Triarc in December
1993 to cease writing new insurance or reinsurance of any kind through
Chesapeake Insurance.
Other (expense) reversal was a reversal of $75 thousand in 1993 compared
to an expense of $36 thousand in 1992. The 1993 amount includes a reversal
of a $1.3 million accrual, provided for in the fourth quarter of Fiscal 1993,
for the legal counsel and financial advisor fees for the plaintiff (the
"Plaintiff") in a purported shareholder derivative suit (the "Ehrman
Litigation") brought against SEPSCO's directors at that time and certain
corporations including Triarc, in the United States District Court. Such
fees will now be paid by Triarc instead of SEPSCO, as originally anticipated,
in accordance with a settlement agreement (the "Settlement Agreement" - see
further discussion below) entered into in October 1993. The 1993 amount also
includes a net accrual of $1.0 million for SEPSCO's expenses related to the
proposed merger (the "Merger" - see further discussion below) of SEPSCO into
Triarc in connection with the Ehrman Litigation.
Page 19 of 27PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
SEPSCO recorded a benefit from income taxes of $1.8 million during the
1993 period despite a pretax loss of $1.2 million, representing an effective
rate substantially in excess of the 35% statutory rate, principally due to
the inclusion in pretax earnings of equity in earnings of affiliates of $4.3
million on which no income taxes were provided. SEPSCO recorded a benefit of
$0.7 million despite pretax income of $5.5 million during the nine months
ended November 30, 1992 principally due to the inclusion in pretax income of
equity in earnings of affiliates of $9.6 million on which income taxes were
provided only on the portion remaining after an 80% dividend exclusion.
Income (loss) from discontinued operations, net of income taxes
decreased $22.5 million to a loss of $20.4 million in 1993 from income of
$2.1 million in 1992 primarily due to the following reasons:
In connection with the consummation of the sales of the tree maintenance
services operations and the construction related operations and the
signing of a letter of intent to sell the ice operations, SEPSCO
reevaluated the estimated gain or loss from the sale of its discontinued
operations and provided $11.0 million for the estimated loss on the sale
of the discontinued operations from an estimated break-even position as
of August 31, 1993. The revised estimate principally reflects (i) $4.7
million of losses from the sales of the operations comprising the
utility and municipal services business segment previously estimated to
be approximately break-even and (ii) $6.6 million of losses from the
sale of operations comprising SEPSCO's refrigeration business segment
previously estimated to be a gain of $1.6 million less previously
estimated losses of $1.5 million from the sale of SEPSCO's natural gas
and oil business segment which now will be transferred to Triarc at net
book value. The net loss from the sale of the utility and municipal
services business segment reflects a reduction of $2.0 million due to a
decrease in asset sales of the construction related activities by July
31, 1994, a reduction of $1.8 million in the estimated sales price for
the construction related operations from previous estimates and other
adjustments in finalizing the loss on the sale of the tree maintenance
services operations. The $8.2 million change relating to the sales of
the refrigeration business segment principally results from (i) a $4.0
million reduction in the sales price for the ice operations based on the
letter of intent and (ii) a $4.0 million reduction in the estimated
sales price of the cold storage operations based on preliminary sales
discussions and experience with respect to negotiating the sale of the
other operations.
SEPSCO recorded an $8.0 million write-down relating to the impairment of
certain unprofitable properties in the first quarter of Transition 1993.
Operating profits of certain business segments through July 22, 1993,
exclusive of the above charges, also declined. The tree maintenance
activities experienced a decline in earnings due to higher insurance
costs, losses on certain contracts and start-up costs on new crews. The
flooding conditions experienced during the second quarter of Transition
1993 prevented the generation of revenues by crews added in anticipation
Page 20 of 27 PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
of increased workload, whereas the fiscal 1993 period was favorably
affected by the additional work in connection with Hurricane Andrew.
The construction related activities experienced a decline due to a lower
number of contracts in progress and losses experienced on existing
contracts. Refrigeration operations had lower margins due to lower
revenues from cold storage due to lower occupancy rates and lower
margins in the ice operations due to competitive conditions. Liquefied
petroleum gas operations had lower margins due to higher cost of product
which it was unable to pass through to its customers.
The above charges were partially offset by the effect of deferring the
$2.9 million net loss from discontinued operations subsequent to July
22, 1993, the measurement date, through November 30, 1993. SEPSCO
expects that such net losses will be offset by seasonal net income of
the liquefied petroleum gas and natural gas and oil operations through
their respective disposal dates.
Effective March 1, 1993, the Company changed its method of accounting
for income taxes when it adopted the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). The
cumulative effect on prior years of the change in accounting principles
decreased the net loss for the nine months ended November 30, 1993 by $7.6
million or $.66 per share, of which $6.4 million related to discontinued
operations, and is reported separately in the condensed consolidated
statement of operations for the first quarter of Transition 1993. Effective
January 1, 1993, CFC Holdings adopted SFAS 109 and Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other than Pensions" ("SFAS 106"). The Company's equity in the
cumulative effect of changes in accounting principles amounted to a charge of
$0.1 million or $.01 per share which is reflected in the condensed
consolidated statement of operations for the first quarter of Transition
1993. Effective March 1, 1992 Graniteville adopted SFAS 109 and SFAS 106.
The change in accounting principles resulted in charges amounting to $6.0
million, (net of taxes of $0.4 million), or $.51 per share, which was
reflected in the condensed consolidated statement of operations for the first
quarter of fiscal 1993.
THREE MONTHS ENDED NOVEMBER 30, 1993 COMPARED WITH THREE MONTHS ENDED
NOVEMBER 30, 1992
Revenues decreased to $1.2 million in 1993 from $5.9 million in 1992 due
to a $4.0 million decrease in equity in earnings of affiliates before
cumulative effect of changes in accounting principles and a $1.0 million
decrease in interest income from Triarc. The decrease in equity in earnings
of affiliates was due to lower earnings of Graniteville and, to a lesser
extent, CFC Holdings. Such lower earnings are primarily attributable to (i)
higher corporate charges to Graniteville by Triarc during Transition 1993,
(ii) provisions for insurance losses by Chesapeake Insurance discussed above
and (iii) the write-off of Graniteville's $2.5 million investment in
Chesapeake Insurance as previously discussed.
Interest expense decreased to $2.3 million in 1993 from $3.2 million in
1992 due to the lower debt outstanding and, to a much lesser extent, to lower
interest rates during the Transition 1993 third quarter.
Page 21 of 27 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
SEPSCO also wrote off its $1.5 million investment in Chesapeake
Insurance for the reasons discussed above.
Other (expense) reversal resulted in income of $1.9 million in 1993
compared with a nominal expense in 1992 due to 1993 reversals of accruals
consisting of (i) a $1.3 million reversal of a fourth quarter Fiscal 1993
accrual for the legal counsel and financial advisor fees for the Plaintiff in
the Ehrman Litigation, which will now be paid by Triarc in accordance with
the Settlement Agreement and (ii) a $0.6 million reversal of Transition 1993
first and second quarter accruals for estimated expenses related to the
settlement of the Ehrman Litigation which will also now be paid by Triarc.
SEPSCO recorded no benefit from income taxes during the 1993 quarter
despite a pretax loss of $0.7 million since it is in a net operating loss
position and no benefit can be realized. SEPSCO recorded a benefit from
income taxes of $0.2 million for the 1992 quarter despite pretax income of
$2.7 million due to the inclusion in pretax income of $4.1 million of equity
in earnings of affiliates on which taxes were provided only on the portion
remaining after an 80% dividend exclusion.
Income (loss) from discontinued operations, net of income taxes
decreased $11.7 million to a loss of $11.0 million in the Transition 1993
period compared to income of $0.7 million in the Fiscal 1993 quarter. As
previously discussed SEPSCO recorded an additional provision for anticipated
losses on disposal of its discontinued operations of $11.0 million during the
three months ended November 30, 1993.
FINANCIAL CONDITION AND LIQUIDITY
At February 28, 1993 and November 30, 1993 cash and equivalents,
excluding restricted cash, amounted to $0.1 million and $35.5 million,
respectively. The $35.4 million increase in cash is principally a result of
the remaining excess proceeds from the sale of the tree maintenance services
operations (see subsequent discussion). Total debt, including the debt of
the discontinued operations, amounted to $60.9 million and $110.2 million at
November 30, 1993 and February 28, 1993, respectively.
As previously reported, a change in control of Triarc occurred on April
23, 1993 (the "Closing Date"), which as a result of Triarc's ownership of
SEPSCO's voting securities constituted a change in control of SEPSCO. In
connection therewith SEPSCO received from Triarc $27.1 million in cash and
$3.5 million in the form of an offset of amounts due to Triarc as of April
23, 1993 in connection with the providing by Triarc of certain management
services to SEPSCO. The aggregate $30.6 million of payments by Triarc
included full payment of $6.8 million (including $0.3 million of accrued
interest) on an unsecured promissory note issued to SEPSCO by Triarc in
connection with the 1988 sale of an investment and partial payment of $23.8
million (including $1.4 million of accrued interest) on a $49.0 million
promissory note due to SEPSCO resulting from the 1986 sale of approximately
51% of Graniteville's common stock to Triarc, as described below. SEPSCO
used the $27.1 million of cash proceeds to pay $12.7 million due under its
accounts receivable financing arrangement which was then terminated and to
pay $14.4 million (including $0.4 million of accrued interest) owed to
Chesapeake Insurance Company Limited ("Chesapeake Insurance").
Page 22 of 27 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
SEPSCO holds a promissory note (the "Note") from Triarc in the original
face amount of approximately $49.0 million, bearing interest at the annual
rate of 13% payable semi-annually. As described above, on the Closing Date,
SEPSCO received partial payment of the Note of approximately $23.8 million
including $1.4 million of accrued interest from Triarc. The Note, after
giving effect to such prepayment, is due in August 1998 and resulted from the
1986 sale of approximately 51% of the outstanding common shares of
Graniteville to Triarc and is secured by such shares. The Note is
subordinated to senior indebtedness of Triarc to the extent, if any, that the
payment of principal and interest thereon is not satisfied out of proceeds of
the pledged Graniteville shares.
SEPSCO has not received any cash dividends from its investment in
Graniteville during the nine months ended November 30, 1993 compared with
$3.0 million in the comparable prior year period.
Under its present credit agreement, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including SEPSCO in
an amount equal to 50% of the net income of Graniteville accumulated from the
beginning of the first fiscal year commencing on or after December 20, 1994,
provided that the outstanding principal balance of Graniteville's term loan
is less than $50.0 million at the time of the payment (the outstanding
principal balance was $75.0 million as of November 30, 1993) and certain
other conditions are met. Accordingly, Graniteville is unable to pay any
dividends or make any loans or advances to SEPSCO prior to December 31, 1995.
SEPSCO is required to pay interest on its 11 7/8% Senior Subordinated
Debentures due February 1, 1998 (the "Debentures") semi-annually on February
1 and August 1 of each year including interest payments due February 1, 1994
and August 1, 1994 aggregating $6.9 million. SEPSCO is also required to
retire annually through the operation of a mandatory sinking fund $9.0
million principal amount of the Debentures on February 1 of each year. The
indenture pursuant to which the Debentures were issued (the "Indenture")
provides that, in lieu of making such payment in cash, SEPSCO may credit
against the mandatory sinking fund requirement the principal amount of
Debentures acquired by SEPSCO other than through the sinking fund. On
February 1, 1993, SEPSCO satisfied such sinking fund requirement by payment
of $8.7 million in cash and the delivery of $0.3 million principal amount of
the SEPSCO Debentures. SEPSCO obtained substantially all of the funds to
satisfy such sinking fund requirement by borrowings from Chesapeake Insurance
as a result of increasing its loans from Chesapeake Insurance by $8.4 million
to $14.0 million. As described elsewhere herein, such loans were repaid in
full on the Closing Date. SEPSCO presently expects that based on the current
market price for such Debentures it would satisfy such mandatory sinking fund
requirement due February 1, 1994 through cash received from the sale of the
tree maintenance services operations rather than through the delivery of
Debentures.
The indenture contains a provision which limits to $100.0 million the
aggregate amount of specified kinds of indebtedness that SEPSCO and its
consolidated subsidiaries can incur. At November 30, 1993 such indebtedness
was $59.3 million resulting in allowable additional indebtedness, if SEPSCO
desired to make such borrowings and if such financing could be obtained, of
$40.7 million.
Page 23 of 27 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
On October 18, 1993, Triarc entered into a Settlement Agreement with the
Plaintiff in the Ehrman Litigation. The Settlement Agreement provides, among
other things, that SEPSCO would be merged into, or otherwise acquired by,
Triarc or an affiliate thereof, in a transaction in which each holder of
SEPSCO's common stock other than Triarc will receive in exchange for each
share of SEPSCO's common stock, 0.8 shares of Triarc's common stock. On
November 22, 1993 Triarc and SEPSCO entered into an agreement and plan of
merger which provides for the Merger of a subsidiary of Triarc into SEPSCO in
the manner described in the Settlement Agreement. Following the Merger,
Triarc would own 100% of SEPSCO's common stock. Consummation of the
Settlement Agreement and the Merger are conditioned on, among other things,
approval by the District Court and SEPSCO's stockholders other than Triarc.
On July 22, 1993, SEPSCO's Board of Directors authorized the sale or
liquidation of all of its operating businesses consisting of its utility and
municipal services, refrigeration, liquefied petroleum gas and natural gas
and oil business. SEPSCO intends to transfer the liquefied petroleum gas
business to National Propane Corporation, a subsidiary of Triarc. On
December 9, 1993 SEPSCO's Board of Directors decided that rather than selling
the natural gas and oil business to an independent third party, SEPSCO would
transfer such business to Triarc following the proposed merger of a wholly
owned subsidiary of Triarc into SEPSCO and the resulting elimination of the
minority interest in SEPSCO.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance
services operations previously included in its utility and municipal services
business segment for $69.6 million in cash plus the assumption by the
purchaser of $5.0 million in current liabilities resulting in a loss of $4.8
million. The $35.5 million cash balance as of November 30, 1993 is
principally a result of such cash proceeds, less the repayment of $24.1
million of capitalized lease obligations relating to the tree maintenance
services operations, repayment of $1.1 million of amounts due to Triarc,
payment of the $2.0 million to the purchasers of the construction related
operations (see below) and general operating requirements since October 15,
1993. On October 7, 1993 SEPSCO sold the stock of its two construction
related operations previously included in its utility and municipal services
business segment for a nominal amount subject to adjustments described below.
As the related assets are sold or liquidated the purchasers have agreed to
pay, as deferred purchase price, 75% of the net proceeds received therefrom
(cash of $1.5 million had been received as of November 30, 1993) plus, in the
case of the larger of the two entities, an amount equal to 1.25 times the
adjusted book value of such entity as of October 5, 1995 (the "Book Value
Adjustment"). As of October 7, 1993, the adjusted book value of the assets
of that entity aggregated approximately $1.6 million. In addition, SEPSCO
paid $2.0 million in October and November 1993 to cover the buyer's short-
term operating losses and working capital requirements for the construction
related operations. As of November 30, 1993 SEPSCO estimated the sales of
the construction related operations would result in a gain of $2.0 million
excluding any consideration of the potential Book Value Adjustment. In
January 1994, however, SEPSCO learned that the buyer of such businesses had
successfully negotiated extensions of certain major contracts with respect to
the larger of such businesses and as a result no longer intends to
immediately dispose of the major portion of the assets. Should the buyer
Page 24 of 27 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
hold such assets through October 5, 1995, the purchase price would
effectively be realized through the Book Value Adjustment. Based on such
revised estimates of asset sales, SEPSCO would approximately breakeven
excluding any consideration of the potential Book Value Adjustment.
On November 12, 1993 SEPSCO signed a letter of intent to sell
substantially all of the operating assets of the ice operations of its
refrigeration business segment for $5.0 million in cash, a $4.0 million note
(discounted value $3.1 million) and the assumption by the buyer of certain
current liabilities of up to $1.0 million. The note, which bears no interest
during the first year and 5% thereafter, would be payable in installments of
$120.0 thousand at the end of each of the four years following the closing
date with the balance of approximately $3.5 million due at the end of the
fifth year following the closing date. The precise timetable for the sale
and liquidation of the remaining discontinued operation, the cold storage
operations of the refrigeration business segment, will depend upon SEPSCO's
ability to identify appropriate potential purchasers and to negotiate
acceptable terms for the sale of such operation. SEPSCO currently
anticipates completion of such sales by July 31, 1994.
SEPSCO has $5.3 million of restricted cash and equivalents which support
letters of credit which collateralize certain performance and other bonds
relating to the utility and municipal services business segment. SEPSCO
anticipates that subsequent to the closing of the sales of the operations
comprising such segment, in due course the buyers will provide the collateral
for such bonds or that the performance secured by the bond will be completed
and the restricted cash will revert to SEPSCO free of restrictions and at
that time be used for general corporate purposes.
SEPSCO had cash used in operations of $3.3 million during the nine-month
period ended November 30, 1993. SEPSCO anticipates its cash requirements for
the last month of Transition 1993, exclusive of operating activities, to be
insignificant. Such cash requirements for the calendar year 1994 will
include $3.9 million of capital expenditures, of which SEPSCO intends to seek
financing from banks and other sources for $3.2 million, as well as $9.0
million of sinking fund payments on the Debentures. SEPSCO expects to meet
all of its cash requirements during the last month of Transition 1993 and the
calendar year 1994 with the aforementioned financing for capital expenditures
and its existing cash balances principally derived from the sale of the tree
maintenance services operations.
Page 25 of 27PAGE
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SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 18, 1993, Triarc entered into the Settlement Agreement with
the plaintiff in the Ehrman Litigation. The Settlement Agreement
provides, among other things, that the Company would be merged into, or
otherwise acquired, by Triarc or an affiliate thereof in a transaction
in which each holder of the Company's Common Stock other than Triarc
will receive in exchange for each share of the Company's Common Stock,
0.8 shares of Triarc's Common Stock. The settlement agreement also
provides that plaintiff's counsel and financial advisor will be paid,
subject to court approval, cash not to exceed $1.25 million and $50,000,
respectively. The settlement of the Ehrman Litigation is conditioned
on, among other things, approval of the Company's stockholders. On
January 11, 1994 the United States District Court approved the
Settlement Agreement. Following such merger or acquisition, Triarc
would own 100% of the Company's Common Stock. On November 22, 1993,
Triarc and the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement"). The Merger Agreement provides for the merger of a
subsidiary of Triarc into the Company in the manner described in the
settlement agreement and is conditioned on, among other things, court
approval and approval by the Company's stockholders other than Triarc.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
September 1, 1993, reporting on the execution of an agreement to
sell the Company's tree maintenance business.
October 7, 1993, reporting on (i) regulatory approvals for the sale
of the tree maintenance business and (ii) the sale of the Company's
underground cable and conduit installation and concrete
refurbishment business.
October 15, 1993, reporting on the consummation of the sale of the
tree maintenance business.
October 27, 1993, reporting on management's intention to change the
Company's fiscal year to one ending December 31.
November 16, 1993, reporting on (i) the execution of a letter of
intent to sell the Company's ice business and (ii) approval by the
Company's Board of Directors of the settlement of the Ehrman
Litigation and the Merger Agreement.
Page 26 of 27PAGE
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SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHEASTERN PUBLIC SERVICE COMPANY
Date: December 14, 1993 BY: /S/ JOSEPH A. LEVATO
---------------------
Joseph A. Levato
Executive Vice President and
Chief Financial Officer
/S/ FRED H. SCHAEFER
---------------------
Fred H. Schaefer
Vice President and
Chief Accounting Officer
Page 27 of 27
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